Tips and Resources on Compensation and Personnel Matters

Compensation and Staffing News
February 2018
     
Who's a Minister for IRS Purposes?
A Shift in Our Interpretation

Three special tax rules apply to ministers: dual tax status, housing/parsonage allowance, and withholding exemption. (You can find information about all of these on our Ministerial Compensation Resources page.) These rules operate together. In other words, for a given minister, all of them apply or none of them do. Essentially, the IRS says that to qualify for the ministerial tax provisions, a person needs to be functioning as a minister, serving in a religious context, considered a religious leader, and (quoting IRS language) "ordained, commissioned, or licensed."

Thus, historically, the Office of Church Staff Finances has regarded ordination as the marker of when someone becomes a minister for tax purposes, in keeping with IRS language and with our polity. However, we sometimes heard from ministers who had recently received preliminary fellowship through the UUA: "Are you saying we don't qualify for the housing allowance (a significant tax benefit) until we get ordained?" With ordination often taking place many months - sometimes well over a year - after fellowshipping, this understandably felt frustrating and unfair to them. We also learned that some ministers' accountants said that their credentialed status through our fellowshipping process met the intent of the law. It was time for us to do some homework and provide some clarity.

So, we pored over the trusted Church and Clergy Tax Guide and gathered further information from online sources. We consulted with the UUA staff who support our ministerial credentialing process. Our research led us to agree that fellowshipping should qualify a minister for clergy tax provisions, just as ordination does. Ultimately, we brought our evidence to a lawyer with expertise in the intersection of church operations and IRS regulations. He has affirmed our conclusion that either ordination or fellowshipping satisfies the "ordained, commissioned or licensed" requirement in the faith-based workplace.

Please make sure that your minister(s) and those involved with compensation and payroll are aware of this shift in our interpretation. If you newly recognize that your minister is eligible for it, do designate a housing allowance for 2018 as soon as possible. (The housing allowance only operates prospectively, i.e., the congregation must designate the amount before expenditures can count toward it.) Feel free to contact Rev. Richard Nugent or Jan Gartner with any questions.

James Luther Adams, the 20th-century Unitarian minister and theologian, proclaimed that revelation is continuous and that we are always learning new truths. In the true spirit of our living tradition, we are pleased to revisit and revise our guidance to reflect our new understandings.
Staff Carrying Other Health Insurance?
 
Are you aware that you can reimburse a staff member for the differential cost of being on other group insurance with no tax impact? (Most often, this happens when they are covered on a spouse's plan.) In other words, your employee can receive from you, tax-free, the additional premium required to be carried on another group plan. (They cannot be reimbursed for premiums paid for an individual plan, including a plan purchased on a state insurance exchange.) We recommend that you make it a policy to provide this reimbursement for all staff who are eligible for our Health Plan (750 hours/year) but covered elsewhere, rather than making it part of your negotiation with an individual minister or other employee. Pointers:
  • Ask for documentation of the other coverage. Confirm that it's group insurance.
  • Get evidence of 1) the actual total premium, including your staff member, and 2) what the premium would be without your staff member covered. The difference is what you can reimburse tax-free. Keep records so that all parties have proof that your reimbursement qualifies as nontaxable income. Ask for updated documentation at least annually.
  • Reimburse monthly, up to the amount that it would have cost you to carry the staff member, based on the share of the premium that you would have paid.
  • As with other forms of reimbursement (professional expenses, for instance), keep this check separate from your regular payroll.
  • If you cover a lower percentage of the health insurance premium for part-time staff than for full-time (which is typical), it is appropriate to offer a similarly proportional lower reimbursement, as well.
We strongly discourage congregations from offering a salary boost to staff who don't need health insurance. Remember, situations can change in a heartbeat. If your staff member is on their spouse's insurance, divorce or a job change for the spouse could leave your staff member (and dependents) in need of coverage through your plan. Or an employee with individual coverage might later need family coverage. If you have tied their salary to their health insurance needs (or lack thereof), what happens when their circumstances change? If you have employees who don't need your health insurance, and you save money by reimbursing for other insurance as explained above, we suggest setting up a reserve account that can be used for future employee benefit needs.

Questions? Contact Jim Sargent, UUA Insurance Plans Director.
New Tax Withholding Tables

Employers have until February 15 to begin using the newly issued 2018 tax withholding tables. Check out these links from the IRS:
Jan Gartner | Compensation and Staffing Practices Manager |  JGartner@uua.org
 UUA Office of Church Staff Finances
  
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